On Oct. 24, IND SEBI proposed changes on valuation of transactions.
IND SEBI proposed changes in valuation of repurchase (repo) transactions with tenor of up to 30 days, which are allowed to be valued on cost plus accrual basis.
In accordance with norms set out in SEBI master circular on mutual funds, #173415.
Background
Investments by mutual funds in money market and debt securities are generally valued on a mark-to-market basis as per SEBI (mutual funds) regulations, 1996.
Adverse events affecting an issuer’s commercial papers may reflect faster in valuation.
Different valuation methods (mark-to-market for commercial papers vs. cost-plus accrual for repo transactions) for the same issuer can lead to regulatory arbitrage.
Proposal
SEBI proposes repo transactions of up to 30 days also be valued on a mark-to-market basis to align with the valuation norms for other money market and debt instruments.
Effectiveness
Stakeholders are invited to submit comments by Nov. 14, 2024.
Nov. 2024 Valuation Changes
On Nov. 26, 2024, IND SEBI issued final guidelines on valuation methodology for repurchase (repo) transactions by mutual funds, where previously repos including tri-party repos (TREPS) with tenor up to 30 days were valued on cost plus accrual basis.
Different valuation methodologies created potential for unintended reg arbitrage.
All repo transactions with tenor up to 30 days, including TREPS, must now be valued on mark-to-market basis; the respective valuation prices for all repo transactions except overnight repos must be obtained from IND MF-empaneled valuation agencies.
Short-term bank deposits pending deployment to be valued on cost plus accrual basis.
All money market and debt securities including floating rate securities to be valued at average prices from valuation agencies; new securities not held by any mutual fund may be valued at the purchase yield/price on the relevant allotment/purchase date.
